Move to ban cryptocurrency has Indian Blockchain firms worried

According to the yet-to-be-released report compiled by Blockchained India, illegitimate transactions, evasion of taxes and lack of talent are some of the other critical problems plaguing the cryptocurrency and blockchain industrySanghamitra Kar | ETtech | Updated: June 12, 2019, 07:12 IST

An industry report on the Indian blockchain sector has raised concerns around a draft proposal by the government to ban cryptocurrency and regulate digital currencies, echoing previous criticism by industry stakeholders and entrepreneurs.

According to the yet-to-be-released report compiled by Blockchained India, illegitimate transactions, evasion of taxes and lack of talent are some of the other critical problems plaguing the cryptocurrency and blockchain industry, primarily due to a lack of regulations.

A government official told ET in April that the draft of the ‘Banning of Cryptocurrencies and Regulation of Official Digital Currencies Bill 2019’ has been circulated to relevant departments.

Last week, media reports suggested that holding, selling or dealing in cryptocurrencies such as Bitcoin could entail 10 years in jail. A Right to Information query filed by blockchain lawyer Varun Sethi, however, showed that the Reserve Bank of India had not issued any such circular. It also had not received any communication from the government with regard to such a draft.

“No official announcement has been made yet and such a draft will take time to become law, especially if it is not a policy priority for the new government,” said Anirudh Rastogi, managing partner at law firm Ikigai.

Nischal Shetty, founder and CEO of Mumbai-based cryptocurrency exchange WazirX, said the “Internet and Mobile Association of India is looking to discuss the regulations with the new government but it’s bound to take some time."

People investing in these assets have been the most-affected, as they are unsure of what is happening on the regulatory front.

Indian VC investments in the blockchain sector totaled a paltry $5.3 million till date, compared to $2 billion in blockchain equity deals globally, or the $20 billion raised through the ICO route, according to a report by Incrypt.

To solve the issue of evasion of taxes, the government could collaborate with cryptocurrency exchanges to bring in transparency, said Akshay Aggarwal, co-founder and CEO of Blockchained India, an organization with 20,000 members. All legitimate cryptocurrency exchanges would be ready to collaborate with the government, he added.

Industry insiders do not expect the government to make any major announcements for the sector this year. However, it may initiate talks with experts to address their concerns.

A case on the cryptocurrency-banking ban, which was scheduled for hearing in the Supreme Court earlier in March, has been postponed to the second week of July. The cryptocurrency user base is around 5-6 million, but the industry has been hit by the apex court's 2018 ruling, leading to the exodus of several venture-backed crypto companies.

Last week, ET reported that an Indian delegation recently studied public blockchain activity in the Swiss city of Zug and is expected to recommend policy changes aimed at adopting a similar framework in the country.